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Most people know what a 401(k) is. It’s a symbol of good workplace benefits and one of the few things that makes a paycheck deduction feel worth it.

An individual retirement account (IRA), on the other hand, is less visible. It’s not linked to your job, you have to set it up on your own, and there’s no chance for an employer to match your contributions.

So how is it that IRAs hold the single largest pile of retirement savings in the U.S.?

Because people change jobs. And when people leave a job where they have a 401(k), they often roll their funds into an IRA to either consolidate their assets or expand their investment options.

In short: Much of the wealth in IRAs is a byproduct of workplace plans, even though IRAs are intended for people who’ve been left out of workplace plans. This irony could help explain why President Trump recently announced plans to make it easier for these people (e.g. the self-employed) to open IRAs.

How big is this wealth? At the end of last year, Americans held $19.2 trillion in IRAs — $5 trillion more than they held in 401(k)s and similar workplace plans, according to data from the Investment Company Institute, a trade group for the asset management industry. That represents 39% of total retirement assets — up from 23% 25 years ago.

Let’s examine how IRAs fit into the retirement ecosystem and how you can maximize their value.

What’s Driving IRA Growth

Roughly 58 million households, or 44% of U.S. households, had some kind of IRA as of mid-2024, according to ICI data. IRA assets were 13% of all household financial assets, up from 8% 20 years ago and 5% 30 years ago.

Part of the growth stems from the growth in workplace plans. As more employers have offered tax-advantaged retirement savings options, their employees have taken advantage. New government rules even require most employers to automatically enroll their workers unless they actively opt-out.

Then there’s the workforce churn factor. An estimated 60 to 70 million workers leave their employers each year, according to LIMRA, a life insurance trade group. Government data shows younger Baby Boomers, for instance, held an average of 12.9 jobs by the time they were 58.

Job changers might choose to roll their workplace account into an IRA for several reasons:

•   Flexibility: IRAs may have more investment options than 401(k)s and similar workplace plans.

•   Simplicity: IRAs can be a landing spot for multiple rollovers.

•   Tax treatment: If you convert to a Roth IRA (more on that in a moment), you take the tax hit now versus after you retire.

•   Cost: Depending on the employer plan, an IRA could charge lower administrative fees.

IRAs vs Workplace Retirement Accounts

Besides pensions, 401(k)s — or similar plans like 403(b)s for teachers — and IRAs are the two main types of retirement savings accounts. They both have tax advantages that encourage saving for retirement, but they work differently.

Anyone with earned income can open an IRA, whereas you must have a job that offers a 401(k)-type plan to participate in one. You can contribute much more each year to a 401(k), however, and many employers add their own money to 401(k)s by matching a portion of employee contributions.

Note: Beginning next year, low-income IRA savers will be eligible for a government match of as much as $1,000. And some IRA providers (including SoFi) now offer a match of 1% or more.

IRA Tax Treatment

The two most common types of IRAs are traditional and Roth. Deciding which one to use comes down to a bet: Will your income tax bracket be higher or lower in retirement?

If you’re in a higher tax bracket now than you expect to be once you retire, a traditional IRA may be the best option because you pay taxes when you withdraw money from your account. That also means your contributions are tax-deductible unless you or a spouse are covered by a workplace plan and your income exceeds certain limits.

Roth IRAs flip the tax equation: You pay taxes on contributions right away in order to take eligible tax-free withdrawals in retirement. You would typically do this if you think you’re in a lower tax bracket then you will be in retirement. But this means there’s an income limit: Unlike traditional IRAs, you can’t contribute to a Roth if your income exceeds a certain threshold. In 2026, for example, it’s $168,000 for a single filer.

If you aren’t sure which would benefit you more, you can have both. (Just know your total contribution can’t exceed the IRS limit.)

Contributing to an IRA vs. a 401(k)

While rolling money into an IRA is common, not everyone actively contributes to them. Among U.S. households surveyed in mid-2024, 41% of Roth IRA holders and 21% of traditional IRA holders said they had contributed the previous year, according to ICI.

Although some of those people were already retired, others said they were already saving enough in their workplace plan or just didn’t have any more to save after those contributions.

But depending on how much of your budget you can spare — and your income and employment benefits — using an IRA in addition to a 401(k) can potentially fast track your retirement savings. Here are some of the tax implications and other factors to carefully consider:

1.    If your 401(k) plan comes with an employer match, it’s free money, so you’ll probably want to contribute at least enough to maximize that benefit. Just make sure to check the vesting schedule first if you’re not sure how long you’ll be working there.

2.    An IRA may have more investment options than a 401(k).

3.    The federal laws governing 401(k)s and IRAs are different, which may leave IRA holders more vulnerable under certain circumstances, like bankruptcy.

4.    The rules around tapping into a 401(k) prior to retirement tend to be stricter than for an IRA. With an IRA, for instance, the 10% penalty is waived if you make qualifying withdrawals to pay for college or buy a house.

5.    Rolling funds into an IRA doesn’t count toward your IRS contribution limits. But there are a variety of rollover rules to follow.

6.    A tax adviser can help you gauge the best strategy for your situation.

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